Book review: The Design of Business

In the beginning, there’s a mystery. A big question begging to be answered. A wicked problem in need of a solution. An opportunity waiting to be seized.

And then along comes an entrepreneur. The entrepreneur cuts through the complexity, clear cuts the field of possibilities and dreams up an innovative solution. Through inspiration and perspiration, a start-up is born.

Over time and through trial and error, the start-up refines and tweaks a winning formula and settles on a recipe for guaranteed success. The start-up grows.

The start-up becomes a company that’s entirely focused on repeating that winning formula over and over again on a bigger and bigger scale. Business is booming and life is good.

But somewhere out there is another entrepreneur who’s looking at the same mystery and dreaming up a different solution. A different solution with the potential to steal customers, grab market share and give the established company a serious run for its money.

And this is why you and I want to work for design-thinking organizations. According to author and Rotman School of Management dean Roger Martin, design thinking is about balancing exploration and exploitation and continually reinventing our companies through constant innovation. It’s all about focusing on both ends of what Martin calls the knowledge funnel.

At the top of the funnel is the exploration of a mystery. This is where hunches and intuition lead to breakthrough ideas.

In the middle of the knowledge funnel is a heuristic, or a general rule of thumb that helps wrestle the mystery down to a manageable size. You choose a path.

At the bottom of the knowledge funnel is an algorithm. This is where the general rule of thumb gets converted into a fixed formula that delivers guaranteed results.

“Very few companies balance exploration and exploitation by continuously looking back up the knowledge funnel to the next salient mystery (or back to the original mystery) and driving across the knowledge funnel, in a steadily cycling process,” says Martin, who argues that focusing on both innovation and efficiency is the winning combination that delivers the most powerful competitive advantage.

Staying at the top of the funnel and exploring mysteries without ever coming up with a money-making algorithm is the reason why nine of out 10 entrepreneurial start-ups crash and burn within the first two years.

And staying at the bottom of the funnel and sticking with the status quo is why established companies lose their innovative spark and get themselves in serious trouble.

Exhibit A is McDonalds. Back in the 1950s, Ray Kroc was selling milkshake mixers in California. His biggest account was with a pair of brothers who ran a small chain of drive-in restaurants. The brothers had come up with a way to serve cheap food fast to a growing middle class of suburban families who loved their cars and the open road.

Business was good. Kroc thought it could be even better. So he bought the chain from the McDonald brothers. Kroc perfected the formula and left nothing to chance. He spelled out exactly how to run every part of the business and grew McDonald’s into a global empire.

“When Kroc converted the heuristic into a precise algorithm, he was able to scale the chain to a size previously unimaginable,” says Martin. “By solving the mystery before its competitors, McDonald’s created an efficiency advantage. By honing and refining the heuristic, it extended the efficiency advantage. By converting that heuristic to algorithm, Kroc drove the efficiency advantage still further ahead of its competitors, creating an enterprise worth billions of dollars – all from one new-style burger joint.”

But then in the 1990s, McDonald’s ran into trouble.“It had lost touch with its consumers and what they wanted in the way of fast food,” says Martin. “Its original solution to that mystery had grown stale with time.Many other chains, from Taco Bell to Subway, explored the mystery of what those consumers wanted, and their solutions drove McDonald’s into a tailspin.

“Early on, McDonald’s left health issues by the wayside. Subway made healthy eating the centrepiece of its value proposition. McDonald’s has subsequently made halting progress toward a healthier menu but its struggles point to the difficulty that companies have in doubling back along the knowledge funnel.”

Martin shows how design thinking can keep your organization constantly moving along the knowledge funnel and balancing analytical mastery with intuitive originality. “Design-thinking firms stand apart in their willingness to engage in the task of continuously redesigning their business. Firms that master it will gain a nearly inexhaustible, long-term business advantage.”

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